Insider trading declared criminal offence
SOHAIL SARFRAZ
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has declared insider trading as a criminal offence under the draft Securities Act, 2015 which may lead to prosecution, ie, imprisonment to persons involved in insider trading.
The SECP officials informed media on Thursday that to detect stock market manipulation and insider trading, the SECP is probing 20 cases of which strong evidence has been possessed by the commission against some big fish.
Sharing the data about the on-going inquiries, SECP officials said that at present 20 inquiries are under process. Six inquiry orders have been issued in cases of market manipulation. In 14 cases of insider trading, the SECP is in the initial stage information collection. There are very big names involved in cases of insider trading including suspended brokers. Big brokers are also under investigation regarding insider trading. In cases of insider trading under investigation, if names of suspects are disclosed, it may create market distortion.
In a presentation on the draft Securities Bill here on Thursday, Imran Inayat Butt, Director, Market Supervision and Registration Department SECP informed media that for the first time, the SECP has declared insider trading as a criminal offence under the draft Securities Act, 2015. The SECP can also impose a maximum penalty of up to Rs 200 million on the persons involved in insider trading under the proposed law. However, declaring insider trading as a criminal offence is a major development. Sending a person involved in insider trading to jail has very serious impact on others trading in stock market, Imran Inayat Butt added.
Referring to the relevant provision of the proposed law, SECP officials said that in the proposed Securities Law penalty for Insider Trading will be prosecution with imprisonment of three years or penalty of Rs.200 million or three times of the gain.
Under draft Securities Act 2015, Imran Inayat Butt informed that the commission can exercise emergency powers to suspend stock market operations. The emergency powers can be exercised by the commission officials under the provisions of the draft Securities Act, 2015. If situation develops where it is necessary to close stock market operations, the SECP would be empowered to do so. The commission would not intervene in the positive/negative trend of stock market but can use emergency powers where situation is out of control. For example, in a situation of war, the stock market operations may not be under taken smoothly. In such a situation the SECP can exercise emergency powers, if necessary.
For the first time, the SECP has declared insider trading as a criminal offence under the draft Securities Act, 2015. The SECP can also impose a maximum penalty up to Rs 200 million on the persons involved in insider trading under proposed law. However, declaring insider trading as a criminal offence is a major development. Sending a person involved in insider trading to jail has very serious impact on others trading in stock market, Butt added. Highlighting the key features of the Act for the discipline of licensed persons, the SECP has been empowered to take disciplinary action against licensed person. Fit and proper criteria have been prescribed. Other features included rights of applicants and holders of license; penalties to be imposed by the SECP; appeal; recovery of penalties; cognizance of offences; prosecution of offences by the SECP; liability of licensed persons for acts of representatives and power of the SECP to issue directions to securities exchange(s), central depositories, clearing house(s) and futures exchange(s) for the enhanced protection of investor and public in general.
When asked how the commission would tackle losses of investors due to brokerage houses default, official said that the SECP has witnessed such cases in Lahore Stock Exchange where some brokers have gone to courts and applied for winding up of brokerage houses. Under the new law, brokers would be required to obtain NOC from the SECP before applying for the winding up to ensure protection to the investors.
Through another presentation, SECP official shared initiatives of the Corporate Supervision Department of the Company Law Division. The Department is responsible for regulation, supervision of public listed companies and accounts examination of other than listed companies that are required to file statutory accounts to SECP (except insurance and foreign companies, NBFCs and Modarabas). The objective is to create a healthy corporate culture and promote good corporate governance that ensures transparency and accountability thereby protecting the stakeholders' rights and strengthening investors' confidence.
The new initiatives being taken by the SECP to regulate public listed companies included electronic transmission of notices of meeting; CNIC mandatory for member of listed companies; CSR Guidelines; meeting of Directors abroad; introduction of corporate governance regime among non listed companies; concept paper to improve filing of annual audited accounts of unlisted companies; general meetings through video conference; appointment of QCR rated statutory auditors by ESEs and valuers' regime.
